Economic theory assumes that preferences are rational. However, experiments have found small violations of transitivity. This paper develops a model of rationality with preference discovery costs. Introspection is costly. Thus, agents may find it optimal to use less than full effort, even though this raises the risk of making a poor choice. This model could potentially explain the intransitivities observed in the data while retaining rationality and optimization.

In most decision-making situations, there is a plethora of information potentially available to people. Deciding what information to gather and what to ignore is no small feat. How do decision makers determine in what sequence to collect information and when to stop? In two experiments, we administered a version of the German cities task developed by Gigerenzer and Goldstein (1996), in which participants had to decide which of two cities had the larger population. Decision makers were not provided with the (...) names of the cities, but they were able to collect different kinds of cues for both response alternatives (e.g., “Does this city have a university?”) before making a decision. Our experiments differed in whether participants were free to determine the number of cues they examined. We demonstrate that a novel model, using hierarchical latent mixtures and Bayesian inference (Lee & Newell, 2011) provides a more complete description of the data from both experiments than simple conventional strategies, such as the take–the–best or the Weighted Additive heuristics. (shrink)

Many theories on cognition assume that people adapt their decision strategies depending on the situation they face. To test if and how affect guides the selection of decision strategies, we conducted an online study (N = 166), where different mood states were induced through video clips. Results indicate that mood influenced the use of decision strategies. Negative mood, in particular anger, facilitated the use of non-compensatory strategies, whereas positive mood promoted compensatory decision rules. These results are in line with the (...) idea that positive mood broadens the focus of attention and thus increases the use of compensatory decision strategies that take many pieces of information into account, whereas negative mood narrows the focus of attention and thus fosters non-compensatory strategies that rely on a selective use of information. The results further indicate that gaining a deeper theoretical understanding of the cognitive mechanisms that govern decision processes requires taking emotions into account. (shrink)

Some researchers on binary choice inference have argued that people make inferences based on simple heuristics, such as recognition, fluency, or familiarity. Others have argued that people make inferences based on available knowledge. To examine the boundary between heuristic and knowledge usage, we examine binary choice inference processes in terms of attribute substitution in heuristic use (Kahneman & Frederick, 2005). In this framework, it is predicted that people will rely on heuristic or knowledge‐based inference depending on the subjective difficulty of (...) the inference task. We conducted competitive tests of binary choice inference models representing simple heuristics (fluency and familiarity heuristics) and knowledge‐based inference models. We found that a simple heuristic model (especially a familiarity heuristic model) explained inference patterns for subjectively difficult inference tasks, and that a knowledge‐based inference model explained subjectively easy inference tasks. These results were consistent with the predictions of the attribute substitution framework. Issues on usage of simple heuristics and psychological processes are discussed. (shrink)

The effectiveness of decision rules depends on characteristics of both rules and environments. A theoretical analysis of environments specifies the relative predictive accuracies of the “take-the-best” heuristic (TTB) and other simple strategies for choices between two outcomes based on binary cues. We identify three factors: how cues are weighted; characteristics of choice sets; and error. In the absence of error and for cases involving from three to five binary cues, TTB is effective across many environments. However, hybrids of equal weights (...) (EW) and TTB models are more effective as environments become more compensatory. As error in the environment increases, the predictive ability of all models is systematically degraded. Indeed, using the datasets of Gigerenzer et al. (1999, Simple Heuristics That Make Us Smart, New York: Oxford University Press), TTB and similar models do not predict much better than a naïve model that exploits dominance. Finally, we emphasize that the results reported here are conditional on binary cues. (shrink)

Making decisions can be hard, but it can also be facilitated. Simple heuristics are fast and frugal but nevertheless fairly accurate decision rules that people can use to compensate for their limitations in computational capacity, time, and knowledge when they make decisions [Gigerenzer, G., Todd, P. M., & the ABC Research Group (1999). Simple Heuristics That Make Us Smart. New York: Oxford University Press.]. These heuristics are effective to the extent that they can exploit the structure of information in the (...) environment in which they operate. Specifically, they require knowledge about the predictive value of probabilistic cues. However, it is often difficult to keep track of all the available cues in the environment and how they relate to any relevant criterion. This problem becomes even more critical if compound cues are considered. We submit that knowledge about the causal structure of the environment helps decision makers focus on a manageable subset of cues, thus effectively reducing the potential computational complexity inherent in even relatively simple decision-making tasks. We review experimental evidence that tested this hypothesis and report the results of a simulation study. We conclude that causal knowledge can act as a meta-cue for identifying highly valid cues, either individual or compound, and helps in the estimation of their validities. (shrink)

Our life is full of choices—choices that differ, among others, in the amount of information on which they are based. For instance, when facing a choice between two options that differ on several decision-relevant attributes, one could rely on the most relevant attribute only to make the decision, or one could integrate information from several attributes and base the choice on that combined information. When a decision maker bases her choice on the most relevant attribute only, however, what does this (...) mean with regard to the amount of information this decision maker had processed prior to making the decision: did she process information about the most relevant attribute only and ignored additional information, or did she consider additional pieces of information as well but let her choice nonetheless be guided by only the most relevant attribute? Understanding the cognitive processes underlying those choices that are based primarily on the most relevant attribute is the main subject of this thesis, in particular, the question of whether or not for these choices additional information is ignored, and if additional information is not ignored, how is this information being processed? The empirical results of several experiments reported here show that decision makers do not ignore information when this information is fully shown to them or when decision accuracy is of importance. Moreover, even when information has to be retrieved from memory, information is not completely ignored. Additionally, first evidence was found that decision makers inhibit information when it conflicts with their decisions. Finally, results of one experiment show that the likelihood of relying on only one piece of information increases under ego-depletion. (shrink)